Is Target a stock worth owning?
“My kids and I love our trips to Target. We stock up on household items, food, clothes, even a movie or two every now and again. How does stack up from a moral standpoint?”
As we consider these choices, doesn’t it make sense to consider the moral implications of where we spend and invest our money? If a company blatantly violates your values do you want to shop or invest in that company? For many investors the answer is a resounding no!
“Proud to Own” Investing
Relatively few companies violate our moral and ethical screening process. For example, there are approximately 10,000 publicly traded companies (including both U.S. and ADRs) which are deemed large enough for prudent investment selection. Out of that universe, only 6.5% violate our moral and ethical screens. That leaves over 93% of the securities’ universe from which investment managers and/or individual investors can choose.
As investors we use a “proud to own” process:
- It must not violate your faith and values. Some of the types of companies we can avoid include those involved in the abortion industry, those producing explicit entertainment and pornography, those conducting embryonic stem cell and fetal tissue research, companies funding and lobbying for homosexuality, those involved in vices like alcohol, tobacco and gambling and companies that are abusing the environment.
- It should be a company that complements your faith and values. This involves finding companies: Helping the poor and defenseless; Protecting the sanctity of human life; Producing morally sound entertainment; Finding cures for life threatening diseases; and Improving the society we live in…
- It should be a company with strong profit potential. This involves finding companies in solid financial condition that have strong profit potential and/or provide strong cash flows via dividends. We use a five-point inspection to evaluate each investment we are considering. We analyze a company’s earnings potential, price momentum, risk, financial health, and its current valuation. Our goal is to find quality companies that stay true to your values AND are profitable! This is not an either /or scenario but rather a winning combination.
A look at Target
Let’s first take a look at Target (NYSE: TGT)…
Target Corporation operates general merchandise stores in the United States. The company offers household essentials, including pharmacy, beauty, personal care, baby care, cleaning, and paper products; hard lines comprising music, movies, books, computer software, sporting goods, and toys, as well as electronics that comprise video game hardware and software; apparel and accessories consisting of apparel for women, men, boys, girls, toddlers, infants, and newborns; and intimate apparel, jewelry, accessories, and shoes. It also provides food and pet supplies, including dry grocery, dairy, frozen food, beverages, candy, snacks and MUCH more…
Evaluating Target from a financial perspective
We use a five point financial inspection to evaluate a company.
- Valuation – Target is attractively priced with a P/E ratio around 17 and a PEG ratio is below 2 at 1.53
- Earnings momentum – It is ranked positive, meaning it has a history of beating earnings expectations.
- Price momentum – The stock has been trending up on both a short and long-term basis. It is up about 40% over the past 12 months. Its relative strength rating is 87 so the price momentum is positive.
- Risk – It has a beta of .67 so it is a 33% less risky than the overall market. So its risk profile is positive.
- Financial health – the company is in solid financial condition with strong sales growth, abundant cash flow, low debt, and solid fundamentals.
Overall from a financial perspective Target stock is a buy…
Looking at Target from a moral perspective
From a moral perspective it’s a different story:
It fails three of our moral screens:
- Abortion involvement – It donates to organizations like as Planned Parenthood that provides abortions. Target’s history of providing charitable aid or donations to non-profit organizations, which include foundations that pay for abortions, provide emergency contraception pills, birth control pills and/or pursue “reproductive freedom” causes it to fail this screen.
- Anti-family Entertainment – Target operates stores, that sell products that are violent, profane, or sexually graphic, such as tee shirts, games, books, novelty items, music and videos. It is also an anti-family advertiser as it spends money supporting offensive television programs. It supports shows containing sexually graphic, violent or profane material and ultimately undermines the positive values parents are trying to instill in their young ones.
- Homosexual activism – It is very active in promoting and supporting the homosexual community and organizations that lobby for homosexual rights. It has formed employee groups within the workplace, promoted homosexuality in its marketing and advertising efforts, sponsored homosexual organization events, given charitable donations to homosexual organizations, and it supports federal legislation that affects the lives of lesbian, gay, bisexual and transgender Americans.
Two better alternatives
Two better alternatives to Target in my opinion are Dollar Tree (NYSE: DLTR) or Costco Wholesale (COST). For comparison purposes Dollar Tree scores better on both a financial and moral perspective.
A look at Dollar Tree
Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise at the fixed price of $1.00. The company’s stores provide consumable merchandise, including candy and food, and health and beauty care products; and household consumables, such as paper, plastics, household chemicals, and frozen and refrigerated food. Its stores also offer various merchandise comprising toys, durable housewares, gifts, party goods, greeting cards, soft lines, and other items; and seasonal goods consisting of Easter, Halloween, and Christmas merchandise.
Evaluating Dollar Tree from a financial perspective
On the financial side:
- Valuation – Dollar Tree also looks good from a valuation standpoint. Its P/E is around 22 and its PE/G ratio is under 2 at 1.68.
- Earnings momentum – It is ranked neutral, meaning it is not favorable nor unfavorable.
- Price momentum – Dollar Tree’s stock has been trending up on both a short-term basis and long-term basis. It is up over 45% over the past 12 months. Its relative strength rating is 89 so the price momentum is positive and higher than Target.
- Risk – It has a beta of just .33 so it is a 2/3 less risky than the overall market. So its risk profile is positive. It is approximately half the risk of Target.
- Financial health – the company is in solid financial condition with strong sales growth, abundant cash flow, low debt, and solid fundamentals. This is a positive here.
Overall, Dollar Tree is rated a “Buy” from a financial perspective…
How does Dollar Tree look from a moral perspective?
On the moral side, Dollar Tree also scores well. It is focused on giving back to the communities it operates in. It doesn’t violate any of the moral screens we use and it has campaigns to give back to society:
Dollar Tree strives to give back to its community, not only by offering quality products at an extreme value, but also by supporting efforts that improve the quality of life in the communities surrounding its corporate headquarters and its nine distribution centers. Through financial support, employee volunteering, and partnerships with its customers and non-profit organizations, it supports causes that will have the greatest impact on these communities and the people who live there.
Dollar Tree is a proud national Sponsor of Operation Homefront. Operation Homefront, a 501(c)(3) non-profit organization, provides emergency financial and other assistance to the families of our service members and wounded warriors. It has donated millions of toys to Operation Homefront. The toys are distributed at all U.S. military bases stateside just in time for the holidays. Dollar Tree also supports our troops and their families through its back-to-school supply collection, as well as a monetary donation given to support Operation Homefront military families in crisis and to help our wounded warriors when they return home.
Dollar Tree continues to support “Growing Wetlands in the Classroom”, a project developed by Lynnhaven River NOW and the Elizabeth River Project. Funding provides the equipment, training, and support to area teachers and students to grow native grasses in their classrooms and transplant the grasses into different wetlands restoration areas throughout the region.
Dollar Tree is investing in tomorrow’s leaders through its contribution to the Virginia Foundation of Independent Colleges (VFIC) Brighter Futures Scholarship Program. Annually, the Dollar Tree Scholars Program provides academic scholarships for students with financial need and academic promise.
Dollar Tree is clearly a “proud to own” company while Target falls short on the moral side. I give Dollar Tree the clear victory in a head to head battle with Target when we consider both the moral and financial implications of owning the stock.
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